Use the Lottery to Fund Retirements

Every year, Americans spend more on lotteries than they do on music, movies, sporting events, and books combined. Despite all the odds, it’s seen by many as a viable form of savings.

As a math teacher, I don’t know how to process that. The expected return is basically zero yet so many of us are still tricked into funding it. The real problem, though, is that the majority of people who frequently participate in the lottery are from the lowest levels of education and socioeconomic status (tend to come from the bottom 20%).

It’s a tax on people who don’t understand probability, and, while, in some cases, that money may be going into public services that improve the lives of people who fund the lottery, it’s fairly easy to imagine how it can end up being a net negative. For instance, lotteries are often partially used to find education, but education investments don’t always have clear social returns and it doesn’t end up clearly improving the lives of lottery participants.

So here’s my proposal.

Take the $73.5 billion spent on lotteries annually — which ends up being about about $1,038 each year per participant — and put it towards different savings vehicles that can actually benefit the people who are participating.

These savings vehicles can vary widely, but the possible outcomes across the board are massive. Take Bill Ackman’s idea for baby bond “investing accounts.” A yearly investment of $26 billion (still only one third of yearly lottery spending) could provide every child in the US a retirement account that is worth $1 million by the time they are 65. Or take Cory Booker’s baby bond plan. It would cost $60 billion a year and would build a nest egg of about $50,000 for low-income children that can be used to support education and homeownership. With some creativity, the lottery can become a source of financial well-being for millions of Americans instead of just being a tax.

It’s notoriously difficult to create noncoercive policies that encourage people to save more money. And on a global level, the United States has an abysmal household savings rate. It’s not baked into our culture to save, and so many of us get stuck in endless cycles of credit debt and financial instability. It’s gotten to the point where 59% of Americans can’t afford an unexpected $500 bill. This has translated into significant retirement savings gaps that will undoubtedly lead to eventual financial trouble.

This can be a positive way to indirectly encourage saving habits without having to deal with extra taxes since each person is participating in the lottery voluntarily. There’s obviously a lot more work to be done on the specific details for how this could be implemented, but I think the idea at the heart of it is worth pursuing.

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Math Teacher writing on Philosophy and Policy and Science and Education and Other Things.

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